wpaper slots 2010 fnl

1AMERICAN GAMING ASSOCIATION WHITE PAPER DEMYSTIFYING SLOT MACHINES

Executive SummaryIn their more than 100 years of existence, slot machines have changed

dramatically. Early, simple versions dispensed payouts of little value. The

machines evolved and came to be known as the “one-armed bandits” that

populated the first Las Vegas casinos and occupied the spouses of gamblers

who preferred table games. As casino gaming became more accessible and

acceptable, it became clear that the American public wanted more slots, and

they wanted a greater variety of choices in the types of games they could

play.

Largely in response to the demand for more slots and greater variety in

gaming experiences, today there are more than 800,000 electronic gaming

machines in commercial and tribal gaming locations in the United States.

More than 380,000 men and women earn $16 billion a year working for the

United States commercial casino and gaming equipment manufacturing

industries. Hundreds of thousands more are employed by Native American

casinos.

A significant majority of gamblers say slot machines are their favorite

games to play, and the slot machine’s share of the gaming floor at American

casinos has grown from about 40 percent in the 1970s to almost 70 percent

today. In Atlantic City casinos, for example, slot machines produced 45

percent of casino revenues in 1978; today they produce nearly 70 percent.

There literally are thousands of games people can play with wagers from a

few pennies to $100 a play.

Though the number of slot machines in the United States has increased

by many magnitudes since the 1970s and the number of casino visitors has

grown to more than 60 million a year, the average amount wagered per

casino visit, when adjusted for inflation, hardly has changed at all. In fact,

in 2010, a visit to a casino is comparable in terms of cost and time expended

to attending a play, ballgame, concert or many other leisure activities.

The competition to meet consumer demand has produced the dramatic

evolution of the slot machine. Slot manufacturers need to build devices for

a society with a decreasing attention span and an increasing demand for

exciting, fast-paced entertainment, all in a marketplace overflowing with

competing entertainment options. In an era when even grandparents play

Demystifying Slot Machines andTheir Impact in the United States

By David Stewart, Ropes & Gray, LLP

With contributions fromKevin Mullally, General Counsel and

Director of Government Relations,Gaming Laboratories International, LLC

andMichael Pollock, Managing Director,

Spectrum Gaming Group

Nintendo Wii™, slot machines have kept pace. As a result, thousands of

new machines are brought to market each year, and each new production

cycle offers higher-quality audio and visual images featuring a wide

variety of themes.

The single payline slot, once ubiquitous, now represents only about

30 percent of the machines in use. It has been substantially supplanted by

devices that offer as many as 200 betting lines and features such as super

jackpots from linked devices and interactive video displays. Future

machines will be even more technology-driven. Gaming operators (i.e.

casinos or slot machine owners) already have the ability, with server-based

slots, to change the game offered by a single machine: for example,

switching between a game that suits the characteristic preferences of

weekend customers and one that better fits those of weekday customers.

As slot machines have evolved, regulation has become ever more

stringent. Few industries are as heavily regulated as the gaming industry.

The 13 states with commercial casinos employ more than 2,250 regulators

and collectively spend approximately $265 million regulating the industry.

Each state has its own regulations and regulators, but all are committed to

ensuring that the machines offered are reliable and fair. Regulations also

prevent customers from being deceived. For example, regulators limit the

frequency with which any given symbol appears in lines above and below

the payline so that the games don’t mislead gamblers by displaying “near-

miss” combinations at disproportionate rates. Regulations also dictate a

minimum percentage that each machine must return to players; this

information always is available to customers.

There are critics of slot machines. Some blame slots for creating

masses of new pathological gamblers and the problems that accompany an

addiction. These critics argue that the machines somehow mesmerize

players into a state of addiction. Some complain that large jackpots lure

people to play when they should not. Others complain that small jackpots

induce people to play longer than they should. Some criticize large-

denomination bill acceptors for encouraging excessive play.

Here are the facts: The prevalence of pathological gambling –

approximately 1 percent of the adult population – is no higher today than

it was in 1976, when Nevada was the only state with legal slot machines.

And, despite the popularity of slot machines and the decades of innovation

surrounding them, when adjusted for inflation, there has not been a

significant increase in the amount spent by customers on slot machine

gambling during an average casino visit.

2 AMERICAN GAMING ASSOCIATION WHITE PAPER DEMYSTIFYING SLOT MACHINES

The prevalence of pathological

gambling – approximately 1 percent

of the adult population – is no higher

today than it was in 1976, when

Nevada was the only state with legal

slot machines.

Introduction

Americans like slot machines. Since the 1970s, the slot machine’s

share of the gaming floor at American casinos has grown from about 40

percent to almost 70 percent. In Atlantic City casinos, for example, slot

machines produced 45 percent of casino revenues in 1978; today, they

produce nearly 70 percent.1 More than 800,000 electronic gaming

machines are installed in commercial and tribal gaming locations in the

United States, including both slot machines and the less-numerous video

poker machines. Nevada alone has almost 200,000 slot machines. Figure 1

summarizes the current distribution of slot machines across the country.

Because tribal gaming establishments are subject to a different

regulatory structure and because many tribal casinos can offer only bingo-


Figure 1U.S. Slot Machine Distribution By State, 2010

Slots at Slots at Slots atCommercial Tribal Non-Casino

State Casinos Casinos Venues Total

Alabama 2,600 2,600Alaska 80 80Arkansas 1,171 1,171Arizona 14,040 14,040California 67,672 67,672Colorado 15,639 1,320 16,959Connecticut 15,007 15,007Delaware 7,523 7,523Florida 3,878 10,931 14,809Indiana 23,341 23,341Illinois 10,335 10,335Idaho 4,041 4,041Iowa 17,562 2,778 20,340Kansas 584 3,758 4,342Louisiana 21,849 6,370 14,691 42,910Maine 1,000 1,000Michigan 9,870 19,112 28,982Minnesota 21,946 21,946Mississippi 34,104 4,088 38,192Missouri 18,615 18,615Montana 1,189 19,918 21,107Nebraska 379 379Nevada 170,341 1,107 19,662 191,110New Mexico 3,332 15,819 19,151New Jersey 30,782 30,782New York 12,469 11,979 24,448North Carolina 3,320 3,320North Dakota 3,448 3,448Pennsylvania 24,754 24,754Oklahoma 1,000 53,897 54,897Oregon 7,489 12,342 19,831South Dakota 3,619 2,204 8,996 14,819Texas 1,600 1,600Rhode Island 6,075 6,075West Virgina 10,423 8,034 18,457Washington 25,696 25,696Wisconsin 17,964 17,964Wyoming 1,245 1,245TOTAL 428,266 321,079 83,643 832,988Source: The Innovation Group (commercial and non-casino locations); Casino City Press Indian

Gaming Industry Report (tribal locations)

type gaming machines – not true slot machines – this paper addresses

principally those slot machines in non-tribal gaming venues.

In a national poll of casino gamblers, the majority – 59 percent – say

they like slot machines better than other casino games.2 The slot machine

has earned its place in the hearts of American gamblers by delivering an

experience that is both exciting and entertaining.

When considering gaming expansion, public policymakers have

favored electronic gaming machines over other forms of gambling, often

because they can be approved under existing state authority to conduct a

lottery. Twenty-two states have approved electronic gaming machines,

while only 14 states have authorized table games like blackjack and craps.3

In an era when grandparents play Nintendo Wii™, slot machines

deliver the interactive experiences available through modern computer

technology. They often feature high-quality audio and visual images that

are exciting, amusing or informative, and draw on themes from vintage

television shows, mythology or popular entertainers. They can offer

complex games with multiple payouts and bonus rounds, mimic the

simplest spin of a wheel, or reproduce favorite card games, such as poker.

Sophisticated computer chips direct the displays of slot machines,

calculate their payouts on bets and guarantee the required payout rates, all

while providing a reliable accounting of every transaction for public

regulators, gaming operators and law enforcement agencies. Some slot

machines are now networked through computer servers.

Slot machines are designed to provide the entertainment that

customers demand. The games compete directly with the myriad of

entertainment choices available today – sporting events, live performances,

movies, video games and much more. A recent survey found the average

gambling budget for a casino visit is $108,4 which makes a trip to a casino

comparable in terms of cost and time expended to attending a play,

ballgame, concert, or other leisure activity. Slot machine makers vie

fiercely for public favor in the competitive marketplace. In 2008, a single

testing laboratory reviewed slot machine equipment produced by almost

400 manufacturers from around the world; it certified more than 52,000

gaming devices and more than 4,000 gaming systems.

Yet, despite the broad popularity of slot machines, many people do not

understand how they work. In some instances, this lack of understanding

has spawned a demonization of the machines. They have been blamed for

social ills ranging from the alienation of American society to undermining

family budgets to creating pathological gamblers. Some complain that

large jackpots lure people to play when they should not. Others complain

that small jackpots induce people to play longer than they should. Some

criticize large-denomination bill acceptors for encouraging excessive play.

Others think the games are too fast, or are deceptively presented because

the odds for different outcomes can vary.


A recent survey found the average

gambling budget for a casino visit is

$108, which makes a trip to a casino

comparable in terms of cost and

time expended to attending a play,

ballgame, concert, or other leisure

activity.

These criticisms ignore two basic truths about the machines. First, they

remain popular because people have fun playing them. It is no secret that

the odds favor the house on every game at a commercial gaming site. For

the vast majority of customers, gambling is entertainment, and slot

machines offer that entertainment without the pressure and anxiety some

gamblers experience with other games. In a recent survey of more than 200

slot machine customers, nearly half said they liked slot machines because

they are more accessible and less intimidating than other games. And, for

many, slot machines simply are more entertaining than other alternatives.5

These customers decide how much money they are willing to invest in that

entertainment. If it isn’t fun, most will choose to do something else.

Second, slot machines are part of an industry that is regulated more

rigorously than banks, brokerage houses or insurance companies. A

government agency has to approve every screen display on a slot machine

to ensure that it is clear and non-deceptive, while the designs of games are

tested extensively in industrial laboratories to ensure their fairness. If a

feature in a game is deemed contrary to the public interest, it is prohibited.

By evolving in response to fluctuating consumer tastes, slot machines

have earned a prominent place on the gaming floor. This paper examines

four basic aspects of slot machines today:

• The defining elements of the slot machines currently in use.

• How slot machine games are designed.

• How slot machines are tested and regulated.

• The social impacts of slot machine gambling.

Describing Slot Machines

In 1899, the first slot machine was developed by Charles Fey, a San

Francisco inventor. His Liberty Bell machine evolved into a device that

was usually played with tokens. Winners ordinarily received gum, mints or

coupons they could redeem for drinks, cigars, tokens or cash. Jackpots on

slot machines emerged in the 1920s, giving birth to the classic sound of

tokens reverberating in the coin trays of slot machines. Not until the 1960s

did manufacturers apply electronics to slot machines. Since then, the

machines have changed rapidly.

Manufacturers currently produce two types of slot machines.

Traditional slot machines are mechanical devices. They have physical reels

that spin in a coordinated fashion to produce the outcome of each play,

though they also may include electronic features. Purely electronic

machines, the second category, use video technology to display images on

a player’s screen and use “virtual reels” in producing the outcome of a play.

These virtual-reel machines can deliver a wide variety of games and make


possible the big jackpots, including progressive jackpots, that now are

offered in many casinos.

Video poker machines share many characteristics of slot machines, but

are specialized to replicate poker games. Video poker machines use

computer technology to deal cards to the customer from a 52-card

electronic deck. The game is played according to the rules of specific poker

games — e.g., Jacks or Better draw poker or Texas Hold 'Em. If a player

has a winning hand, the amount won is determined by his wager and the

game's pay table. The games tend to vary little from the card games they

reproduce. Because video poker accounts for only 13.7 percent of the

electronic gaming machine market, because the design of video poker

machines is defined by the poker games they replicate, and because video

poker machines are subject to the same regulatory controls that apply to

slot machines, this paper will not address them separately, but will treat

them as one part of the diverse universe of slot machines.

Slot machines in the United States are subject to extensive laboratory

testing and to careful regulation by state governments. The testing and

regulation aim to make certain that the games are fair to customers and that

the machines operate reliably. State laws prescribe a minimum percentage

that each machine must return to players as winnings (e.g., at least 80

percent of the amounts wagered), although slot machines at most gaming

venues pay out considerably more than the prescribed minimum.

The size of the bets accepted by slot machines can vary widely. In

recent years, customers have gravitated towards low-denomination

machines that offer multiple small bets on a single play (called “multi-line”

machines). Many casinos have seen this revival in nickel slots and penny

slots. At the other end of the spectrum, bet denominations on slot machines

can be up to $100 per play.

To ensure fairness, the outcome for each play is determined by a

random number generator or central determination system. Because each

play is an independent event, unrelated to any play before or after, there is

no such thing as a “hot” slot machine or a “cold” one. A player’s chances

of winning a given bet on that machine are the same every time he or she

makes that particular bet.

After each game, a player can decide to play again – using the same

wager configuration or a different one – or complete the gaming session by

cashing out the credit meter for a redeemable ticket or coins. If the player

makes another wager, the game process repeats in the same manner,

independent of the results of any prior games.

Slot machines are programmed to keep complete records of the

gambling activity conducted on them – both the amounts bet and the

amounts paid out. These electronic records are kept in the format

prescribed by state regulators and, in many instances, are delivered


electronically to those regulators on a daily basis. Regulators review the

records to monitor the fairness of the games and to ensure correct and

prompt payment of direct gaming taxes.

The revenues generated by individual slot machine games vary widely.

The average daily win-per-slot-machine can be three times higher for a

game in one casino than it is for a different game in a different gaming

venue in a different market. Many economic factors influence the revenue

that a machine generates, beginning with how busy the gaming venue is

and how well the machine suits the customers in that market. In addition,

some states limit the number of slot machines within the state or at a given

location. Such artificial limits often prevent the supply of machines from

fully meeting the market demand, so the revenue from each machine in

those states often is higher.6

Other factors play a role as well. A machine’s location on the gaming

floor may well influence the revenue it produces. Machines in high-traffic

areas ordinarily will produce greater revenue, though that is not uniformly

true. The design of gaming floors is as much an art as it is a science. Also,

slot machine customers vary by region in terms of the types of games they

favor and the patterns of their play.

A few broad trends characterize slot machine activity in recent years:

• Since the 1970s, slot machines steadily gained popularity and

share of the consumer’s gambling budget, but their popularity has

leveled off – and even declined slightly – over the last couple of

years. To use the Atlantic City casino market as an example, in

1978, slot machines generated 45 percent of casino revenue. By

2002, the share of casino revenue due to slot machines was close

to 75 percent. It has fallen to just below 70 percent since then.


HOW DOES A SLOT MACHINE WORK? Although a single play of a slot machine takes but a few seconds, it involves many steps inside the machine. The player selectsthe amount he wishes to bet on each play. Once play begins, the machine’s random number generator identifies a number foreach field of the machine’s screen. Through a two-step process, the computer processor within the machine (the “gameprocessor”) translates each number into the symbol that will display in each field.

First, based on a program developed for the game by its designer, the game processor assigns each randomly-generatednumber to a “reel stop.” (In a mechanical slot machine, a reel stop is a location on the spinning reel; in a video slot machine, areel stop is a location on a virtual reel.) Each reel stop is designed to produce a specific symbol for display on the screen. Whenthe game’s audio and visual effects are completed, the symbols are displayed.

At the same time, the game processor evaluates those symbols that will display on the “paylines” of the game’s screen. Ifany symbol or group of symbols matches a winning combination, that payline or field is marked as a win. The processorcalculates the amount won based on the odds incorporated into the game and the amount the customer bet.The screen notifiesthe player of the win, and also if a bonus is awarded. Every win is added to the player’s credit meter. The machine’s accountingmeters record the result of the play, which also is transmitted to the casino’s accounting and player reward system.

After each game, a player can decide to play again — using the same wager configuration or a different one — or completethe gaming session by cashing out the credit meter for a redeemable ticket or currency. If the player makes another wager, thisprocess repeats in the same manner, independent of the results of any prior games.

• State governments have participated in the growth of slot machine

gambling by approving slot casinos at racetracks and other non-

casino locations. Eight states allow slot machines or other electronic

gaming machines but do not permit casino games like roulette,

blackjack and craps.7

• A slot machine costs more than $10,000 and has an average lifespan

of seven years.

• Slot machines incorporate entertainment themes drawn from

television shows (e.g., Wheel of Fortune), board games (e.g.,

Monopoly), movies (e.g., Top Gun) and popular culture (e.g., Elvis

Presley). With enhanced computer power, the modern slot machine

can provide complex and changing visual and audio displays that are

reminiscent of video games. Like video games, some slot machine

games now incorporate story lines, with players progressing from one

level to another, all in the effort to provide a better experience for the

customer.

• Ticket-in/ticket-out technology (TITO) largely has eliminated the

coins needed to play yesterday’s slot machines. Current machines

accept currency and certain forms of electronic payment and pay

winnings in the form of a ticket that is redeemed with a casino

cashier. As a result, players do not have to carry coins, the casino does

not need to manage coins, and the clang and grime associated with

coins are only a memory in most commercial gaming locations.

• When gaming operators introduced loyalty cards for customers –

cards that provide benefits based on a customer’s gambling and

spending at the gaming venue – they focused on slot machine play,

which was relatively easy to track. Loyalty cards, which are adapted

from similar cards offered by airlines, hotels and other consumer-

oriented businesses, have been popular with customers.

• With few exceptions, slot machine games have become more

complex. On these more advanced machines, players can place

wagers on multiple lines at the same time and can win opportunities

to qualify for bonus rounds of the game.

• Looking to the future, many slot machines will be linked together

through central, server-based networks. Networking simplifies data

collection, makes it easier to revise the terms of the game offered by

machines and provides operators the ability to change the game

offered on a machine. Another recent development is “community

gaming,” which offers a bank of related or linked slot machines.

When several individuals play these machines at the same time, the

community gaming system offers the opportunity for players to

jointly win entry into a bonus round and then play that stage together.


Despite the popularity of slot

machines and the decades of

innovation surrounding them, there

has not been a significant increase

in the amount spent by customers

on slot machine gambling on an

average casino visit.

Despite the popularity of slot machines and the decades of

innovation surrounding them, there has not been a significant

increase in the amount spent by customers on slot machine

gambling on an average casino visit. Four states with

commercial casinos provide sufficient information to analyze,

over a number of years, the average spending on slot machine

gambling per casino visit. When adjusted for inflation, those

results reflect very little growth in the average spending on slot

machines during a commercial casino visit, even with the

technological advances in slot machines over that period (See

Figure 2 and Appendix A).8

These results are generally

consistent with a recent study of

average per capita spending on

gambling around the world, which

found that the United States ranks

14th among global gaming

jurisdictions by that measure.9

In short, the innovations in slot

machines have been necessary to

maintain their position in the

entertainment marketplace and

have not fundamentally altered the

role that gambling plays as a

recreational activity for Americans.

Public opinion surveys performed

since 1998 by Peter D. Hart Research Associates show relatively little

fluctuation in the percentage of Americans who reported gambling at a

casino during the previous year. From 1993 to 2009, between 25 percent

and 35 percent of respondents reported gambling in a casino the previous

year (See figure 3).

The slot machine has matured just as other leisure activities have. The

first movies were silent, flickering images of black-and-white; they have

been repeatedly transformed, first by the addition of sound, then color, and

now computer-generated images jump off the screen in 3-D. Books have

evolved from expensive hardback editions to paperbacks, to audio books

and now to electronic books. Customers expect slot machines to

incorporate the technological innovations surrounding them.

Designing Slot Machines

Slot machine manufacturers offer thousands of slot machine games,

many of which can be configured to accept bets of different denominations


Figure 2Growth in Slot Machine Spending:

A Look at Four StatesAnnual Growth

Time Period in Average SlotState Analyzed Spend-per-Visit

Illinois (2000-2009) 0.3%Iowa (1997-2009) 3.6%Nevada (1992-2009) 1.0%New Jersey (1984-2009) 2.1%

Source:Illinois Gaming Board, Iowa Racing and GamingCommission, Nevada Gaming Control Board, New Jersey Casino Control Commission

Figure 3Casino Gambling Participation, 1993-2009

Percent of American AdultsWho Gambled at a CasinoDuring the Past Year

Source: Harrah’s Entertainment, Inc. (1993-1997); American Gaming Association (1998-2009)

1993 1994 19991998199719961995 2001 2004200320022000 2005 20072006 2008 2009

25%

27%

26%26% 28%27% 29%34%

29%

27%

28%35%35%

29%

25%

29%31%

0

20

40

60

80

100

or to provide different combinations of features. Manufacturers introduce

scores of new games every year – only a few are smash successes, others

do well enough, and some never meet much public favor. There is no

magic formula for a successful game – customers decide which games are

winners. Designers undertake a lengthy process in trying to develop a

game that will deliver the entertainment experience customers want.

A designer ordinarily has a specific audience in mind for a new game.

He may try a new approach to appeal to some specific group of customers,

or he may try to improve on an existing machine that has been successful.

To appeal to that audience, the designer can adapt the betting choices and

payout tables in the game as well as the game’s look and feel.

Slot machines often are classified on a spectrum from “high-volatility”

games to “low-volatility” games.

• High-volatility games have higher betting denominations and

bigger jackpots, but fewer winning combinations. They generate

lower amounts of customer time on the machine because many

customers will spend their gambling budgets more rapidly in

return for the excitement of playing for higher stakes. Customers

who prefer high-volatility games often are less interested in a

game’s audio and visual displays.

• Low-volatility games have lower betting denominations with

more opportunities for the customer to win, though the payouts

are smaller. Customers tend to play these games for longer

periods of time, and the games ordinarily will deliver stronger

themes or more developed audio and visual displays.

These classifications, of course, mark polar extremes; many games are

designed to deliver a customer experience that falls between these poles.

Although gaming venues will offer a range of machines along this

spectrum, lower-volatility games often have greater appeal in “locals

markets” than in destination resort markets like Las Vegas or Atlantic City.

In locals markets, customers expect to visit casinos more often; many of

those customers look to spend a longer time on a machine and thus place a

greater value on a game’s theme or complexity. Destination resorts trend

towards the higher-volatility games since more of their customers prefer to

play for higher stakes.

Designers also must consider what entertainment themes will appeal to

the target market. For high-volatility games, a more basic, gambling-

oriented theme might work best. Low-volatility games may be more

effective with a Hollywood or other entertainment theme that will prompt

an affinity among many customers. Themes for slot machines are subject

to regulation. Nevada, for example, bars themes that might have special

appeal to those who are underage.10


Many of a designer’s decisions focus on the structure of betting. What

denominations should the machine accept as bets? Should there be bonus

rounds? Should it be a multi-line game? By allowing the customer to place

wagers on several lines at once (some machines offer as many as 200

lines), the multi-line machine increases the likelihood that each individual

play will yield a win, though the amount of each win ordinarily is modest.

In many instances in a multi-line game, the customer’s win on a single line

will be less than what he spends on all the lines he played. The partial win

gives a player some satisfaction and stretches his gambling budget,

allowing greater time playing the machine while spending the same

amount of money. Multi-line machines often allow nickel or even penny

bets per line.

Once a designer makes these basic decisions, many months of work

remain. The designer must craft the game, blending theme and betting

opportunities with the artwork and audio features that will be the game’s

signature on the gaming floor. Underlying these more creative elements are

the mathematics of the betting and payouts, which must be programmed

into the game, along with the engineering of the machine to ensure it will

operate reliably and will interact consistently with other programs run by

the gaming operator. The designer may need to accommodate game

elements required by some foreign regulators to encourage responsible

gaming – elements such as maximum bet limits, or restrictions on the time

a customer may play a machine. As discussed on pages 16-17, these efforts

to reduce pathological gambling by manipulating the machines have met

with little success thus far.

A prototype of a new game is tested with customers to identify

problems and potential improvements in design, math and engineering.

When the designer is satisfied, he submits the game to a private testing

laboratory that will verify its math and ensure it operates in the intended

fashion.

Despite all of the audience analysis, rigorous engineering and creative

design that go into a new game, the launch is an anxious process. Many

games do not succeed. That is why manufacturers launch so many new

titles every year, searching for the combination of game, visual display and

theme that will ignite the level of customer excitement the gaming operator

needs.

Regulating Slot Machines

Like every part of the gaming industry, slot machines are subject to

exacting regulation by state agencies. The gaming regulatory agencies in

the 13 states with commercial casinos deploy more than 2,250 people to

oversee the commercial gaming industry at a cost of $265 million.

The elements of slot machine regulation are the same in each state,

though there are variations on particular points. The commitment in every


The gaming regulatory agencies

in the 13 states with commercial

casinos deploy more than 2,250

people to oversee the commercial

gaming industry at a cost of

$265 million.

state is to make sure (i) the manufacturer meets the strict criteria for

business integrity that apply to the gaming industry in that state; (ii) the

machines comply with demanding standards for reliability; (iii) the games

are designed fairly and do not deceive the customer; and (iv) any disputes

between customers and gaming operators over a machine’s performance

are investigated impartially and decided fairly.

Standards for business integrity are enforced through state licensing.

Equipment manufacturers and their executives make extensive disclosures

about their business and personal histories and financial conditions. The

licensing state also conducts background investigations of applicants.

Licenses are subject to periodic renewal and can be revoked for

misconduct.11

States require machines to be submitted to months of testing, either in

state-run laboratories or in independent testing labs. Technical standards

govern the movable and electronic parts of the machine that make it work

– factors such as physical security, cabinet wiring, player safety, access

doors, coin and currency compartments, bill acceptors, computer memory,

switches, communications protocols, video monitors, touch screens, credit

redemption, and ticket validation.

The labs are themselves certified and required to comply with ISO

17025 and ISO 17020 standards for technical competence in testing and

inspection services.13 The goal at all stages of the testing process is to

ensure that the game has proper security, is reliable, and gives every player

an equal opportunity to win.

Some states – Michigan, Nevada, New Jersey and Pennsylvania –

operate their own testing laboratories. Their labs apply the same types of

detailed technical standards.13

Whether a state operates its own lab or relies on independent testing

facilities, it will apply its own unique requirements to certain features of

the machines, such as minimum payout percentages, betting limits or

methods of handling currency. All states will satisfy themselves that the

terms of play for a game are correctly and fully disclosed on the machine’s

screens so that every customer can readily understand how the game is

played and how winners are determined. The final licensing decision is

always made by a public regulator.14

Because regulators must approve every change in the screen display of

a game, modifications of existing games represent the vast majority of

game license reviews. The Nevada Gaming Control Board reviews up to

3,000 such modifications per year. Regulatory examination of an entirely

new game or a completely new gaming platform, however, is a much

broader and more time-consuming effort.

Regulators carefully examine the impact on consumers of game

innovations, such as the fairly recent introduction of server-based slot

machines. Because such slot machines are part of a central data processing

network, the gaming operator instantly can change the games offered on


any specific machine. For example, the gaming operator could switch

between a game that suits the characteristic preferences of weekend

customers and one that better fits those of weekday customers. To ensure

that customers are not startled or deceived by abrupt changes in the game

offered on a machine, Nevada technical standards require that a machine

be taken out of service for a set period of time whenever a game is

changed.15 This mandatory downtime ensures that a customer does not

experience a confusing change in the middle of a gaming session. Other

jurisdictions have similar regulations.

State regulators also address concerns that games can mislead

gamblers by displaying “near-miss” combinations at a disproportionate

rate. For example, in a game that requires three cherries in a single line (the

payline) to win, a near miss might display cherries in the first two fields of

the payline, while a cherry would appear in the third field on the line just

above or just below the payline. Regulators were concerned that such

displays could mislead customers about their chances of winning.

Although this concern applies only to the less-numerous single-line reel

games rather than multi-line games, state regulators, slot makers and slot

testing labs generally follow a policy that places a ceiling on potential near-

miss displays for the top jackpot of a game. Although this requirement is

not a written regulation, it applies to the blank symbols that are above or

below the top jackpot symbol in the game, specifying that those blanks

cannot appear on the payline more than six times as often as any other

symbol. The effect of that requirement is to place a ceiling on how

frequently the top jackpot symbol may appear in a near-miss position

immediately above or below the payline. By allowing symbols to appear

with somewhat differing frequency (up to the 6:1 ratio), the requirement

accommodates the mathematics of contemporary games, which rely on

such variations to produce the complex games and bigger jackpots that

customers enjoy. In California, some tribal casino regulators take the same

approach, but apply a 9:1 ratio, while gaming regulators in Ontario,

Canada, apply a 12:1 ratio.16

Once a slot machine game is installed on the gaming floor, it is

constantly monitored and inspected according to an intricate system of

internal controls and audit programs. These measures are designed to

detect efforts to compromise the integrity of the machines and to verify that

the devices in play are identical to those that have been certified in the lab.

Each machine has a unique electronic signature, which is the computer

equivalent of a fingerprint. Using special tools, regulators can verify that

the computer programs running on each slot machine are identical to those

approved in the lab.

The regulatory agencies also manage customer complaints about slot

machines. Such complaints may question whether the machine recorded

the points earned for a loyalty card, whether a bonus should have been

awarded, or whether a jackpot was correctly won or not won. If the


complaint questions the electronic or mechanical operation of the machine,

investigators disable the machine until they have completed their

examination.17 Independent testing labs provide computer forensics teams

to investigate machine performance outside normal parameters. If the

customer is not satisfied by the casino’s response to the complaint, he can

pursue it through an administrative process and also in court.

Social Impacts of Slot Machine GamblingWhen lawmakers consider whether to legalize gaming in their

communities, they weigh the impact that gaming can be expected to have.

The broadest benefits from slot machines go to customers. As an

entertainment activity, slot machine gambling affords a mix of excitement,

suspense and fun that customers value.

More than 60 million Americans visited casinos last year. A trip to a

gaming venue provides a break from everyday life, as well as a social

experience in a public space shared by a wide range of customers. Many

people visit a casino with family and friends, often mounting a group

expedition with the flavor of an adventure. Casinos are good places to meet

new friends or people watch. The upbeat atmosphere encourages people to

converse easily and be friendly. For some groups of customers, like the

elderly, the social aspects of the casino may be especially attractive.18

The commercial casino industry, significantly fueled by the popularity

of slot machines, is a considerable economic engine. It directly employed

more than 350,000 workers in 2009, paying them more than $14 billion

in compensation. The commercial casino industry also paid more than

$5.5 billion in direct gaming taxes to support public activities – such as

education, programs for senior citizens, and infrastructure projects – and

generated many billions more in income tax, sales tax and other public

revenue contributions. Manufacturers of gaming equipment employed

30,000 people who earned an estimated $2.1 billion in salaries and wages,

and generated a proportionate level of tax payments.19

Some commentators have attempted to connect pathological gambling

to the evolution and design of slot machines. Pathological gambling –

recognized by the American Psychiatric Association as a medical condition

involving loss of control when gambling – certainly damages individuals,

families and the greater society. Only anecdotal evidence, however, has

been presented to suggest a unique link between pathological gambling

and slot machines. Though critics have argued that the machines somehow

mesmerize players into a state of addiction, those assertions are not

supported by scientific research and data about gamblers, the gaming

industry and pathological gamblers.

The critics rarely address a central fact: that the prevalence of

pathological gambling in the United States has been remarkably consistent

over time, at about 1 percent of the adult population. That percentage has


Though critics have argued that the

machines somehow mesmerize

players into a state of addiction,

those assertions are not supported

by scientific research and data

about gamblers, the gaming industry

and pathological gamblers.

Figure 4Impact of Slot Machine Expansion on Prevalence of Pathological and Problem Gambling*,

1976-2008


Sources:Commission on the Review of the National Policy Toward Gambling (1976). Gambling in America: Final Report of Commission for theReview of National Policy Toward Gambling, 49-50.

Kallick, M., Suits, D., Dielman, T., & Hybels, J. (1979). “A Survey of American Gambling Attitude and Behavior.” University of MichiganSurvey Center, Institute for Social Research.

Shaffer, H. J., Hall, M. N., & Vander Bilt, J. (1997). “Estimating the Prevalence of Disordered Gambling in the United States and Canada: A Meta-Analysis.” Boston, MA: Division on Addictions, Harvard Medical School.

National Research Council, et al. (1999). “Pathological Gambling: A Critical Review.” (Report prepared for the National Gambling ImpactStudy Commission), 16-17.

Shaffer, H. J., Hall, M. N. (2001). “Updating and refining meta-analytic prevalence estimates of disordered gambling behavior in the UnitedStates and Canada.” Canada Journal of Public Health, 92(3), 168-172.

Perry, N., Stinson, F.S., & Grant, B.F. (2005). “Comorbidity of DSM-IV Pathological Gambling and Other Psychiatric Disorders: Resultsfrom the National Epidemiologic Survey on Alcohol and Related Conditions.” Journal of Clinical Psychiatry, 66(5), 564-574.

Hwang, I., Kessler, R.C., LaBrie, R., Petukhova, M., Sampson, N.A., Shaffer, H.J., & Winters, K.C. (2008). “DSM-IV Pathological Gamblingin the National Comorbidity Survey Replication.” Psychological Medicine. 38(4), 1351-1360.

Slot machine data is based on information found in International Game Technology's annual reports and data supplied by the NevadaGaming Control Board and New Jersey Casino Control Commission.

*According to the DSM-IV, pathological gambling is a persistent and recurrent maladaptive gambling behavior as indicated by certain

characteristics. The term is used to describe the most severe level of a gambling disorder. Problem gambling is a term commonly used to

describe the less severe, or sub-clinical, forms of disordered gambling in which the individual has gambling-related problems but not of

sufficient severity to meet diagnostic criteria for pathological gambling.

0

5

10

15

20

1976 20052001199919971979 20080

200,000

400,000

600,000

800,000

1,000,000

Percentage of Pathological Gamblers in the U.S.

Percentage of Problem Gamblers in the U.S.

Number of Slot Machinesin the U.S.

Percent of U.S. Population

Number of Slot Machines

held steady for nearly 35 years,20 during which time many new jurisdictions

have introduced slot machines, and those machines have captured a larger

and larger share of existing gaming floors (see figure 4).

In some jurisdictions with new or expanded gaming opportunities, it

appears that the novelty effect of new forms of gambling, including slot

machines, has resulted in a temporary increase in problem gambling.

However, recent research has shown that, over time, the population adjusts

to the availability of gaming, and problem gambling rates return to near

previous levels. Additionally, researchers have observed that jurisdictions

with long exposure to legalized gambling and slot machines, such as

Nevada, have not developed prevalence rates of pathological gambling

higher than the national average.21 If the machine were the culprit, a major

increase in the number of machines would be expected to trigger a parallel

growth in the percentage of pathological gamblers in the adult population.

It has not.

These patterns of pathological gambling suggest that the problem

should not be addressed as a one-dimensional question for which the best

and only solution is to reduce opportunities for gambling. Many other

factors need to be part of a public health strategy to reduce pathological

gambling, including evidence-based assessment, prevention, interventions,

and treatment strategies.22

In addition, an important research finding in recent years is that people

who have trouble controlling their gambling often struggle with other

behavioral problems and mental health disorders. A national study of more

than 43,000 Americans funded by the National Institutes of Alcohol Abuse

and Alcoholism found that almost three-fourths of pathological gamblers

abused alcohol (73.2 percent), more than a third used illegal drugs (38.1

percent) and three-fifths were addicted to tobacco (60.4 percent). A large

share suffered from a mood disorder (49.6 percent), anxiety disorder (41.3

percent) or personality disorder (60.8 percent).23

Other studies have reported similarly high rates of “comorbidity” –

that is, people diagnosed with pathological gambling often have other

mental health and behavioral problems, as well. A landmark study of

mental health in America noted that, among those individuals who

developed pathological gambling, 23.5 percent developed pathological

gambling before any other psychiatric problem, 74.3 percent developed

pathological gambling after experiencing other psychiatric problems, and

2.2 percent developed pathological gambling and other psychiatric

problems at the same time.24 Other studies reinforce these results.25

Although more research is needed to determine whether one type of

problem causes any other, these findings emphasize the complexity of the

problems pathological gamblers face. Further, research has shown that

addiction usually reflects a flawed relationship between a vulnerable

person and the object of his addiction, not some defect inherent in that

product. Cutting-edge researchers have concluded that “the specific objects

of addiction play a less central role in the development of addiction than

previously thought.”26 A plain implication of this research is that


attributing pathological gambling to the design of slot machines is

simplistic. Some people have difficulty gambling responsibly, as others are

prone to use credit cards irresponsibly or to drive cars recklessly. The

problem is not in the products they abuse, but within the individuals.

These conclusions are reinforced by the recent settlement of the almost

decade-long lawsuit over video lottery terminals in Quebec. In Brochu v.Loto-Quebec, a class-action lawsuit, the plaintiffs claimed that electronic

gaming machines were designed to make gamblers addicted by creating

the “illusion of control” over the games. After a trial that lasted more than

a year, the plaintiffs settled for less than 10 percent of their initial demand

and signed a stipulation that the machines are not “the cause of

pathological gambling.” The presiding judge specifically approved that

stipulation as supported by the evidence presented at trial.

Bearing out these results, recent efforts by regulators in Australia and

Canada have met little success in reducing pathological gambling by

manipulating gaming machines. The measures they have implemented

include imposing betting limits, restricting the time a customer can play a

machine or requiring anti-gambling messages to appear on slot machines’

video screens. For every such measure, however, gamblers may deploy a

compensating strategy. Faced with maximum bet limits, gamblers can play

faster. Confronting a slow machine or mandatory “time outs” from play,

they can extend their gambling per day. They also can avoid such social

controls entirely by gambling in unregulated environments, including

illegal ones.27 In short, research to date generally shows that most machine

modifications, including reductions in the speed of the machines and limits

on amounts that gamblers can wager, are not effective in reducing

pathological gambling.28

In addition, research has found that pathological gambling symptoms

can develop from types of gambling that “have little in common [with each

other].”29 Since loss of control can arise in people who play different

games with different characteristics, there is little reason to assume that

changing the rules for gaming machines will prevent a person from losing

control. Indeed, pathological gamblers can have success in regaining

control over their gambling without formal treatment or help.30 This

phenomenon, called “natural recovery,” does not justify inaction on

pathological gambling, but it highlights the importance of individual action

in controlling the problem.

When an activity poses no risk for 98 to 99 percent of the adult

population, measures to protect the few who may be at risk should not

unnecessarily disrupt the interests of the vast majority. In this respect,

legalized gambling is no different from other activities – including eating,

consuming alcoholic beverages, driving a vehicle or surfing the Internet –

that can cause injury if done in an unsafe manner. Effective policies for

pathological gambling concentrate on helping the people who have the

problem rather than trying to modify their behavior indirectly by changing

the rules, appearance or patterns of specific games.


When an activity poses no risk

for 98 to 99 percent of the adult

population, measures to protect the

few who may be at risk should not

unnecessarily disrupt the interests

of the vast majority.

Conclusion

Slot machines bring fun and excitement to a large number of

Americans every day. They are designed to entertain and are regulated and

tested throughout their lifespan to ensure fairness for players. These

machines also have been the engine behind the growth of an industry that

contributes jobs, economic development and substantial tax dollars to

gaming states and communities. And, while there are those who cannot

gamble responsibly, scientific evidence suggests no special link between

slot machines and pathological gambling.

Competing in the bruising entertainment marketplace, slot machine

makers have constantly innovated, keeping pace with customer demands

and the trend toward increasing technological sophistication in all aspects of

entertainment, from video games to motion pictures. Through the

development of new games and gaming systems, gaming machine designers

are creating increasingly satisfying customer experiences. Their success can

be measured by the fun their customers have playing their games.


Endnotes

1New Jersey Casino Control Commission. Historical Statistics: Operating Statistics: www.state.nj.us/casinos/financia/histori/, Accessed:

Feb. 22, 2010.

2VP Communications and Peter D. Hart Research Associates for the American Gaming Association, 2010 State of the States: The AGASurvey of Casino Entertainment.

3This paper addresses only gaming legalized for commercial venues, so these descriptions omit tribal gaming establishments, which

operate under varying regulatory regimes.

4VP Communications and Peter D. Hart Research Associates, for American Gaming Association, 2010 State of the States: The AGASurvey of Casino Entertainment.

5VP Communications and Peter D. Hart Research Associates for American Gaming Association, 2010 State of the States: The AGASurvey of Casino Entertainment.

6State-imposed limits on the number of slot machines are likely to produce lower overall slot machine revenue, and thus to generate

lower tax revenues.

7Florida, Maine, Montana, New Mexico, New York, Oklahoma, Oregon and Rhode Island. Previously, Delaware and Pennsylvania

were included in this group, but as of 2010, both states have approved table games to be offered at their commercial gaming venues.

8Each state was studied for the period during which the data was available, and those periods varied, as indicated in the chart in the

text. In each case, however, the period included time during which slot machines were increasing significantly in their sophistication,

so each state’s experience is illuminating. For each state, as explained in Appendix 1, the analysis used a reported statistic for customer

visits, or casino admissions, which was recorded consistently over time, but which may have included people who did not actually

gamble at slot machines. As those statistics were each measured consistently during the relevant time period, however, they provide

reliable results for our purpose, which is to examine the trend in slot machine spending per casino visit, even if the amount of the

estimated spending per visit is itself overstated or understated.

9Pryor, F.L. (2008). “Macro-Determinants of Gambling in Industrialized Nations.” Kyklos, 61(1), 101-113.

10Nev. Reg. 14.025.

11E.g., Pennsylvania Gaming Regulations, §421.1, et seq.

12The International Organization for Standardization (ISO) is a prominent worldwide body with more than 80 member countries

responsible for publishing industry standards of good practice. These standards are embraced by both government and private-sector

firms to ensure that products and services are suitable for use in a variety of regulated industries and markets. All aspects of the lab’s

internal operations are regularly evaluated by an external authoritative entity for compliance with stringent ISO standards.

13E.g., Mississippi Gaming Regulations, § VIII. “Technical Standards for Gaming Devices and On-line Slot Systems;” Nevada Gaming

Control Board, “Technical Standards for Gaming Devices and On-line Slot Systems,”

http://gaming.nv.gov/stats_regs/reg14_tech_stnds.pdf.

14 An example is the rejection by the California Department of Justice of multistation roulette games. GLI-11, the predominant

technical standard in California, establishes the allowances for electro-mechanical random number generators (RNG) in the

determination of game outcome. These devices typically use a microprocessor-controlled motor to spin the wheel and a

microprocessor-controlled blower to release the ball into the well at varying speeds. Software determines, at random, how fast the

wheel will spin and how fast the ball will be released. Although the game meets the full technical specifications of GLI-11, the

California Department of Justice (CA DOJ) has made an interpretation that this is still the game of roulette and, therefore, state law

prohibits it.

15 Nevada Technical Standards, § 1.140.

16 E.g., N.R.S. § 14.040(3); 58 PA Code Section 461.7(5)(ii); 11 MO CSR § 45-5.190(J); Barona Tribal Technical Standards for

Gaming Devices, § V(3)(a)(ii). Most multi-line games do not display lines above or below paylines that are not themselves paylines.

Accordingly, displays for multi-line games cannot ordinarily suggest that the customer has just missed a certain winning combination.

17 E.g., Missouri Gaming Regulations, §45-5.235.

18 Desai, R.A., Desai, M.M., and Potenza, M.N. (2007). “Gambling, health and age: Data from the National Epidemiologic Survey of

Alcohol and Related Conditions.” Psychology of Addictive Behaviors, 21(4), 431-440.)

19 VP Communications and Peter D. Hart Research Associates for the American Gaming Association, 2010 State of the States: TheAGA Survey of Casino Entertainment.


20 Commission on the Review of the National Policy Toward Gambling (1976). Gambling in America: Final Report of the Commission

on the Policy Toward Gambling, https://dspace.ucalgary.ca/bitstream/1880/41368/1/report.pdf.; Kallick, M., Suits, D., Dielman, T., &

Hybels, J. (1979). “A survey of American gambling attitudes and behavior.” (Research report series, Survey Research Center, Institute for

Social Research). Ann Arbor, Mich.: University of Michigan Press.; Shaffer, H., Hall, M, Vander Bilt, J. (1997). “Estimating the

prevalence of disordered gambling behavior in the United States and Canada: A meta-analysis.” Boston: Presidents and Fellows of

Harvard College.; National Opinion Research Center, et al. (1999) “Gambling Impact and Behavior Study.” (Report prepared for the

National Gambling Impact Study Commission). Chicago, Ill.: University of Chicago.; Shaffer, H. J., & Hall, M. N. (2001). “Updating

and refining meta-analytic prevalence estimates of disordered gambling behavior in the United States and Canada.” Canadian Journal ofPublic Health, 92(3), 168-172.; Petry N.M., Stinson F.S., Grant B.F. (2005). “Comorbidity of DSM-IV pathological gambling and other

psychiatric disorders: results from the National Epidemiologic Survey on Alcohol and Related Conditions.” Journal of Clinical Psychiatry66:564-574.; Kessler, R.C., Hwang, I., Labrie, R., Petukhova, M., Sampson, N.A., Winters, K.C., & Shaffer, H.J. (2008). “DSM-IV

pathological gambling in the National Comorbidity Survey Replication.” Psychological Medicine, 38(9), 1351-60.

21 LaPlante, D.A., & Shaffer, H.J. (2007). “Understanding the influence of gambling opportunities: Expanding exposure models to

include adaptation.” American Journal of Orthopsychiatry, 77(4), 616-623.; Shaffer, H.J., LaBrie, R. & LaPlante, D. (2004). “Laying

the foundation for quantifying regional exposure to social phenomena: Considering the case of legalized gambling as a public health

toxin.” Psychology of Addictive Behaviors, 18, 40-48.; Volberg, R.A. (2002). “Gambling and problem gambling in Nevada.”

Northampton, MA: Gemini Research Ltd.; Wiebe, J., & Volberg, R.A. (2007). “Problem Gambling Prevalence Research: A Critical

Overview.”

22 Blaszczynski, A., Ladouceur, R., Shaffer, H.J. (2004). “A Science-Based Framework for Responsible Gaming: The Reno Model.”

Journal of Gambling Studies, 20 (3).

23 Petry, N.M., Stinson, F.S., & Grant, B.F. (2005). “Comorbidity of DSM-IV Pathological Gambling and Other Psychiatric Disorders.”

Journal of Clinical Psychiatry, 66(5), 564-574.

24 Kessler, R.C., Hwang, I., LaBrie, R., Petukhova, M., Sampson, N.A., Winters, K.C., & Shaffer, H.J. (2008). “DSM-IV pathological

gambling in the National Comorbidity Survey Replication.” Psychological Medicine, 38(9), 1351-1360.

25 Stewart, S.H., & Kushner, M.G. (2003). “Recent Research on the Comorbidity of Alcoholism and Pathological Gambling.” Alcohol

Clin Exp Res, 27(2), 285-291.; Mizerski, D. & Mizerski, K. (2003). “Exploring the Buying Behavior of ‘Good’ and ‘Bad’ Gambling

Products.” Journal of Research for Consumers. Issue 5.

26 Shaffer, H., LaPlante, D., LaBrie, R., Kidman, R., Donato, A., & Stanton, M. (2004). “Toward a syndrome model of addiction: Multiple

expressions, common etiology.” Harvard Review of Psychiatry, 12, 367-374; 93.; Shaffer, H.J. (1999). “On the nature and meaning of

addiction.” National Forum: The Phi Kappa Phi Journal, 79, 9-14.

27 Atlantic Lottery Corporation. “Nova Scotia Video Lottery Responsible Gaming Features Research.” October, 2002, § 4.; Blaszczynski,

A., Ladouceur, R., & Shaffer, H.J. (2004). “A Science-Based Framework for Responsible Gambling: The Reno Model.” Journal ofGambling Studies, 20(3), 312, 314.; Blasczczynksi, A., Sharpe, L., & Walker, M. (2001). “The Assessment of the Impact of the

Reconfiguration of Electronic Gaming Machines as Harm Minimisation Strategies for Problem Gambling.” University of Sydney. 9-12.;

Peller, A.J., LaPlante, D.A., & Shaffer, H.J. (2008). “Parameters for Safer Gambling Behavior: Examining the Empirical Research.” J.Gambling Studies, 24(4), 519-534.

28 Blasczczynksi, A., Sharpe, L., & Walker, M. (2001). “The Assessment of the Impact of the Reconfiguration of Electronic Gaming

Machines as Harm Minimisation Strategies for Problem Gambling.” University of Sydney. 9-12.

29 Welte, J.W., Barnes, G.M., Wieczorek, W.F., Tidwell, M.O., & Parker, J.C. (2004). “Risk Factors for Pathological Gambling.” AddictiveBehaviors, 29(2), 323-335.

30Slutske, W.S. (2006). "Natural Recovery and Treatment-Seeking in Pathological Gambling: Results of Two U.S. National Surveys." Am.J. Psychiatry, 163(2), 297-302.


GLOSSARY

Bonus game, bonus round – awarded on some games, usually when a specific symbol orcombination of symbols lands on a played line. Customers may have to make an additional wager toplay the bonus game.

Community gambling – a bank of connected slot machines which allow multiple players to jointlyplay bonus rounds on the machines.

Game – the combination of theme and betting pattern that shapes the customer’s experience of playing aspecific machine. Games are controlled by game-specific software that is responsible for the appearanceand behavior of the game.

Game processor – a microcomputer that serves as the “brains” of the gaming machine. The gameprocessor controls all game functions, including as coin acceptance, coin dispensing, data accumulationand accounting, random reel spin/stop sequences, video graphics and audio effects.

High-volatility games – slot machine games with higher betting denominations and bigger jackpots,but fewer winning combinations.

Low-volatility games – slot machine games with lower betting denominations with moreopportunities for the customer to win, though the payouts are smaller.

Mechanical slot machine – features actual physical reels that activate for game play when the“play” button is pressed, or the slot handle is pulled. A mechanical slot machine can have three, four orfive spinning reels, and often will have an LCD (liquid crystal display) in the top box for bonus games.

Multi-line machines – slot machines that allow the player to place wagers on multiple lines on themachine’s display screen for a single play.

Near misses – A concern principally for single-line machines, this arises when most of a winningcombination of symbols appear on a payline and the other winning symbol appears on lines immediatelyabove or below the payline.

Pay line – any line of symbols on the screen of a slot machine for which certain outcomes (symboldisplays) will win money or other bonuses for the customer.

Pathological gambling – according to the DSM-IV, a persistent and recurrent maladaptive gamblingbehavior as indicated by certain characteristics. The term is used to describe the most sever level of agambling disorder.

Pay table – the matrix of outcomes and payouts for each game, which reflects the odds adopted for eachoutcome. Regulators review and approve the pay tables for every game.

Progressive jackpot – offered on machines that allocate a percentage of the value of each bet to a topjackpot that continues to accrue until a customer wins that top award. For many progressive jackpots,the top award is accumulated from a number of interconnected machines.

Reel stop – position at which a reel may stop after it spins; in a video slot machine, the reel stop is onthe virtual reel.

Slot machine, slots – the hardware. Most machines are composed of a base cabinet and a top box.Operational hardware components, including the microprocessor, power supply, coin hopper, ticketprinter and bill acceptor, are located in the base cabinet. Hardware to support bonus functions, such aswheels, bonus reels and LCD displays, are located in the machine’s top box.

Video slot machine – features game play on a video monitor and uses “virtual reels” to generate thesymbols that are displayed and determine the outcome of the play.



Appendix AYear-to-Year U.S. Slot Spending Trends: Preliminary Results

Spectrum Gaming Group – March 2010

In an effort to quantify changes in average spending on slot machine gaming during recent years,

Spectrum looked to those jurisdictions with (i) consistent records of attendance at commercial gaming

venues and (ii) long periods of time with few changes in gaming rules. Ultimately, Atlantic City, N.J.; Las

Vegas, Nev.; Iowa; and Illinois were selected for this analysis.

Some cautions must apply to examining the results. For Las Vegas and Atlantic City, “visitor” does not

necessarily equate to “gambler,” let alone “slot player.” However, the visitor data in both markets has been

collected in a consistent manner over long periods of time, so these data are internally consistent and

comparable year-to-year. Similarly, for Iowa and Illinois, not all customer “admissions” represent

individuals who at play slot machines, and some admissions represent repeat visitors. Again, within each

jurisdiction, the data was collected in as consistent a manner over time as is available, and is therefore

generally comparable year-over-year. This analysis is therefore not an attempt to estimate actual slot

spending per player, but rather to gauge relative changes in such spending levels during given periods of

time.

Regarding Atlantic City, it is important to note that the downward spending trend in recent years (from

2007 to 2009) is due to more than the economic downturn, which impacted each of the selected jurisdictions.

Atlantic City’s spending decline preceded the downturn and is more pronounced than in other markets. This

is due in part to new and significant competition in neighboring states, mainly venues in Pennsylvania and,

to a lesser degree, in Yonkers, N.Y. Increased competition has led to a decline in both Atlantic City visitation

and (to some extent) trip spending among casino patrons. Additionally, the decline in slot spending may be

augmented by the fact that competing jurisdictions currently offer only slots, so Atlantic City visitors may

be comprised more of table players and relatively fewer slot players than in the past. While these effects

cannot be readily quantified or filtered out, they should be noted.

Each of the selected jurisdictions publishes slot machine gambling revenue per year. By dividing those

revenue totals by the available “visit” or “admission” data for that jurisdiction, an estimate was derived for

the average amount spent on slot machine gambling for each customer visit or admission. Although there

are uncertainties about the accuracy of these figures, as described above, the movements in these figures

from year to year provide a good measure of the trends in slot machine spending, and thus whether the slot

machine share of customer gambling budgets has increased, declined or stayed relatively stable. The

consumer price index was used to adjust the results of this analysis for the effects of inflation.


Atlantic City, N.J.Atlantic City had the longest period of comparable slot revenue and visitation data. Here, total slot

revenue is paired with total visitor estimates provided by the South Jersey Transportation Authority,

beginning in 1983, once gaming had become fairly established.

Source: New Jersey Casino Control Commision, South Jersey Transportation Authority

The preceding Atlantic City data result in the following average slot gaming spend per visitor trip

estimates, adjusted for inflation to 2008 dollars.1

This generally increasing trend represents a 2.1 percent average annual yearly increase, adjusted for

inflation, as detailed in the following table.


ATLANTIC CITY CASINO INDUSTRYSLOT MACHINE WIN

1979 - 2009(In Millions, Except Per Visit)

Est. Inflation-Average adjusted Year-to- Cumulative

Annual Annual Slot Percentage Slot year AverageIndustry Percentage AC Percentage Spend Change in Spend Percentage Annual Total Change Visits** Change Per Visit CPI* Per Visit Change Change

(actual dollars) (in 2008 dollars)

1983 $877.9 26.361 $33.30 3.2% $59.41

1984 $980.1 11.6% 28.466 8.0% $34.43 4.3% $59.94 0.9%

1985 $1,087.7 11.0% 29.326 3.0% $37.09 3.6% $63.24 5.5% 3.2%

1986 $1,185.4 9.0% 29.932 2.1% $39.60 1.9% $66.77 5.6% 4.0%

1987 $1,326.1 11.9% 31.845 6.4% $41.64 3.6% $68.71 2.9% 3.7%

1988 $1,493.6 12.6% 33.138 4.1% $45.07 4.1% $72.52 5.5% 4.1%

1989 $1,577.2 5.6% 32.002 -3.4% $49.28 4.8% $76.93 6.1% 4.4%

1990 $1,724.3 9.3% 31.813 -0.6% $54.20 5.4% $81.68 6.2% 4.7%

1991 $1,851.1 7.4% 30.788 -3.2% $60.12 4.2% $88.08 7.8% 5.1%

1992 $2,113.8 14.2% 30.705 -0.3% $68.84 3.0% $98.79 12.2% 5.9%

1993 $2,214.6 4.8% 30.225 -1.6% $73.27 3.0% $102.95 4.2% 5.7%

1994 $2,297.1 3.7% 31.321 3.6% $73.34 2.6% $101.14 -1.8% 5.0%

1995 $2,572.7 12.0% 33.272 6.2% $77.32 2.8% $104.46 3.3% 4.9%

1996 $2,626.0 2.1% 34.042 2.3% $77.14 3.0% $101.90 -2.5% 4.3%

1997 $2,720.1 3.6% 34.070 0.1% $79.84 2.3% $103.63 1.7% 4.1%

1998 $2,825.2 3.9% 34.300 0.7% $82.37 1.6% $105.59 1.9% 4.0%

1999 $2,955.9 4.6% 33.652 -1.9% $87.84 2.2% $110.67 4.8% 4.0%

2000 $3,088.0 4.5% 33.184 -1.4% $93.06 3.4% $114.09 3.1% 4.0%

2001 $3,141.3 1.7% 32.423 -2.3% $96.88 2.8% $116.07 1.7% 3.8%

2002 $3,261.7 3.8% 33.187 2.4% $98.28 1.6% $116.17 0.1% 3.6%

2003 $3,327.3 2.0% 32.224 -2.9% $103.25 2.3% $119.67 3.0% 3.6%

2004 $3,556.5 6.9% 33.230 3.1% $107.03 2.7% $121.15 1.2% 3.5%

2005 $3,674.0 3.3% 34.924 5.1% $105.20 3.4% $115.51 -4.7% 3.1%

2006 $3,803.7 3.5% 34.534 -1.1% $110.14 3.2% $117.41 1.6% 3.1%

2007 $3,464.5 -8.9% 33.316 -3.5% $103.99 2.8% $107.94 -8.1% 2.6%

2008 $3,132.5 -9.6% 31.813 -4.5% $98.47 3.8% $98.47 -8.8% 2.1%

2009 $2,721.8 -13.1% -0.4%**http://www.sjta.com/sjta/pdfs/2008%20Annual%20Visitors%20Report.pdf*U.S. Bureau of Labor Statistics: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt


Las Vegas, Nev.While Las Vegas has a longer gaming history than Atlantic City, comparable statistics for the

purposes of this analysis date back to 1992, as shown below. City visitor numbers provided by the

Las Vegas Convention and Visitors Authority are paired with slot revenues for operators located

near the Las Vegas Strip that generate more than $72 million annual total gaming revenues.

Source: Nevada Gaming Commission, Las Vegas Convention and Visitors Authority

The Las Vegas data above result in the following average slot gaming spend per visitor trip

estimates, again adjusted for inflation to 2008 dollars.

The overall Las Vegas trend in average slot spend per visitor over the last 18 years has been

much flatter than that for Atlantic City. The average change is 1.0 percent, after inflation, as detailed

on the following page.


LAS VEGAS/CLARK COUNTYSLOT MACHINE WIN


1992 1993 1994 1995 1996 1997 1998 1999 2000

Total Slot Win $1,021.8 $1,078.6 $1,428.5 $1,391.5 $1,442.4 $1,486.2 $1,719.4 $1,928.4 $2,107.7

Annual Percentage Change 5.6% 32.4% -2.6% 3.7% 3.0% 15.7% 12.2% 9.3%

LV Visits** 21.887 23.523 28.214 29.002 29.636 30.465 30.605 33.809 35.850

Annual Percentage Change 7.5% 19.9% 2.8% 2.2% 2.8% 0.5% 10.5% 6.0%

Est. Average Slot Spend Per Visit $46.69 $45.85 $50.63 $47.98 $48.67 $48.78 $56.18 $57.04 $58.79 (actual dollars)

Percentage Change in CPI* 3.0% 3.0% 2.6% 2.8% 3.0% 2.3% 1.6% 2.2% 3.4%

Inflation-adjusted Slot Spend Per Visit $66.99 $64.43 $69.82 $64.82 $64.29 $63.32 $72.02 $71.87 $72.08 (in 2008 dollars)

Year-to-year Percentage Change -3.8% 8.4% -7.2% -0.8% -1.5% 13.7% -0.2% 0.3%

Cumulative Average Annual Change 2.3% -0.9% -0.9% -1.0% 1.5% 1.2% 1.1%

2001 2002 2003 2004 2005 2006 2007 2008 2009

Total Slot Win $2,055.4 $2,111.9 $2,160.3 $2,535.6 $2,789.9 $3,059.3 $3,142.9 $2,886.9 $2,471.8

Annual Percentage Change- 2.5% 2.7% 2.3% 17.4% 10.0% 9.7% 2.7% -8.1% -14.4%

LV Visits 35.017 35.072 35.540 37.389 38.567 38.915 39.197 37.482

Annual Percentage Change -2.3% 0.2% 1.3% 5.2% 3.2% 0.9% 0.7% -4.4%

Est. Average Slot Spend Per Visit $58.70 $60.22 $60.78 $67.82 $72.34 $78.61 $80.18 $77.02 (actual dollars)

Percentage Change in CPI* 2.8% 1.6% 2.3% 2.7% 3.4% 3.2% 2.8% 3.8% -0.4%

Inflation-adjusted Slot Spend Per Visit $70.32 $71.18 $70.45 $76.77 $79.43 $83.80 $83.23 $77.02 (in 2008 dollars)

Year-to-year Percentage Change- 2.4% 1.2% -1.0% 9.0% 3.5% 5.5% -0.7% -7.5%

Cumulative Average Annual Change 0.7% 0.8% 0.6% 1.3% 1.5% 1.8% 1.6% 1.0%

**LVCVA: http://www.lvcva.com/getfile/80/Historical%201970%20to%202008.pdf*U.S. Bureau of Labor Statistics: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt


Iowa Iowa slot revenue and admissions are comparable for the purpose of this analysis beginning in 1996.

Results over 13 years are as follows.

Source: Iowa Racing and Gaming Commission.

The resulting estimated average annual spending increase after inflation is 3.6 percent.

Detailed year-to-year estimates for Iowa are as follows.


IOWASLOT MACHINE WIN


1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total Slot Win $577.4 $632.0 $699.5 $780.5 $797.6 $875.3 $899.1 $966.5 $1,000.6 $1,042.3 $1,191.0 $1,284.3 $1,286.9 Annual Percentage Change 9.5% 10.7% 11.6% 2.2% 9.7% 2.7% 7.5% 3.5% 4.2% 14.3% 7.8% 0.2%Iowa Visits 20.272 20.841 20.695 21.335 19.836 20.029 19.186 19.509 19.793 20.315 22.513 23.735 22.956 Annual Percentage Change 2.8% -0.7% 3.1% -7.0% 1.0% -4.2% 1.7% 1.5% 2.6% 10.8% 5.4% -3.3%Est. Average Slot Spend Per Visit $28.48 $30.33 $33.80 $36.58 $40.21 $43.70 $46.86 $49.54 $50.55 $51.31 $52.90 $54.11 $56.06 (actual dollars)Percentage Change in CPI* 2.3% 1.6% 2.2% 3.4% 2.8% 1.6% 2.3% 2.7% 3.4% 3.2% 2.8% 3.8% -0.4%Inflation-adjusted Slot Spend Per Visit $36.86 $38.76 $42.45 $44.70 $48.01 $51.48 $54.12 $55.88 $55.30 $54.49 $54.70 $53.89 $56.06 (in 2008 dollars)Year-to-year Percentage Change 5.2% 9.5% 5.3% 7.4% 7.2% 5.1% 3.2% -1.0% -1.5% 0.4% -1.5% 4.0%Cumulative Average Annual Change 7.3% 6.7% 6.8% 6.9% 6.6% 6.1% 5.2% 4.5% 4.1% 3.6% 3.6%Iowa Racing and Gaming Commission: http://www.iowa.gov/irgc/gamingpage2.htm*U.S. Bureau of Labor Statistics: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt


Illinois Illinois slot revenue and admissions are comparable for the purpose of this analysis beginning in 2000.

Results over nine years are as follows.

Source: Illinois Gaming Board.

The resulting estimated average annual spending increase after inflation is only 0.3 percent.

Detailed year-to-year estimates for Illinois are as follows.


ILLINOISSLOT MACHINE WIN


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total Slot Win $1,349.2 $1,492.9 $1,544.6 $1,458.0 $1,481.8 $1,567.5 $1,690.2 $1,749.4 $1,369.1 $1,254.0

Annual Percentage Change 10.7% 3.5% -5.6% 1.6% 5.8% 7.8% 3.5% -21.7% -8.4%

Illinois Visits 19.015 18.808 18.822 16.598 15.331 15.323 16.180 16.525 14.637 14.419

Annual Percentage Change -1.1% 0.1% -11.8% -7.6% -0.1% 5.6% 2.1% -11.4% -1.5%

Est. Average Slot Spend Per Visit $70.96 $79.38 $82.06 $87.85 $96.66 $102.29 $104.46 $105.86 $93.53 $86.97 (actual dollars)

Percentage Change in CPI* 3.4% 2.8% 1.6% 2.3% 2.7% 3.4% 3.2% 2.8% 3.8% -0.4%

Inflation-adjusted Slot Spend Per Visit $86.71 $94.78 $96.67 $101.46 $109.03 $111.91 $110.94 $109.46 $93.16 $86.97 (in 2008 dollars)

Year-to-year Percentage Change 9.3% 2.0% 5.0% 7.5% 2.6% -0.9% -1.3% -14.9% -6.6%

Cumulative Average Annual Change 5.7% 5.4% 5.9% 5.3% 4.2% 3.5% 1.2% 0.3%

Illinois Gaming Board: http://www.igb.state.il.us/revreports/*U.S. Bureau of Labor Statistics: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

1 U.S. Bureau of Labor Statistics: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt


Acknowledgements

The American Gaming Association would like to thank the following

individuals for the generous contribution of their time and expertise in the

development of this paper: Anthony Baerlocher, senior staff game

designer, International Game Technology; Travis Foley, technology chief,

Nevada Gaming Control Board; Phil Gelber, vice president of game

development, WMS Gaming, Inc.; Bill LaPenta, director of financial

analysis, Spectrum Gaming Group; Anthony Lucas, Ph.D., associate

professor of casino management, University of Nevada, Las Vegas; Allison

McCoy, senior vice president of marketing, Spectrum Gaming Group;

Derris Newman, vice president of research, The Innovation Group; Marcus

Prater, executive director, Association of Gaming Equipment

Manufacturers; Christine Reilly, executive director, Institute for Research

on Gambling Disorders; and Eric Weiss, lab administrator, technical

services bureau, New Jersey Casino Control Commission.

1299 Pennsylvania Avenue, NW

Suite 1175

Washington, DC 20004

202-552-2675

www.americangaming.org

© 2010 American Gaming Association.All rights reserved.

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